Compliance professionals frequently cite “tone-at-top” as an essential component of a compliance program. It sounds good and a few quick sentences on the topic is usually all that is provided when explaining what this means.
In reality, “tone-at-the-top” is not really just “tone-at-the top” it is a lot more. I will try to be clear. Most people think that tone at the top is satisfied once the CEO puts out a statement of commitment to compliance. That is far from what I mean.
The real definition of tone at the top is — a commitment and repeated commitment from corporate leadership throughout the company to emphasize the importance to the company of compliance and ethical conduct, which is embraced and integrated into every level of business operations. That is a real mouthful but there is a lot more definition of terms needed to fill this out.
First, what do I mean by “Top?” The Top does not mean the CEO or a Senior Manager. The Top means the Chairman of the Board (who hopefully is not the CEO for corporate governance purposes) and the head of the Audit, or preferably the Compliance Committee. The top means the top and the message and commitment must come from the top.
Second, what is the message? The message from the top is not just we will comply with the law. The message is far broader – our company is committed to the highest ethical standards in every aspect of its business – not just compliance but business practices, sales practices, legal counseling, human resource practices, and treatment of employees and customers. Ethics is part of the corporate branding and requires that every level of the company be committed to this value.
Third, how is the message communicated? The message is not a one-time-memo coupled with a compliance policy. It is a message that is communicated repeatedly and through as many means and avenues as possible. It is part of business development, compliance, auditing and financial controls, production, marketing and any other significant aspect of the business. There are formal occasions for the message to be communicated and defined – education and training programs are the most common but it should be reiterated at every possible organized activity.
Aside from communication, the company can demonstrate its tone and its commitment to ethical conduct by its actions. Creating a compliance committee at the board level, a senior executive compliance committee at the senior management level, and lower level compliance committees, as necessary, will demonstrate a commitment to compliance.
In addition, the company needs to elevate the Chief Compliance Officer to a senior executive position and allocate sufficient resources to carry out its mission. Compliance is just as important as a legal and auditing staff, and needs to be treated as such.
Fourth, to whom is the message communicated? I often say that tone at the top is only worth something if it becomes tone in the middle and tone at the bottom. That is a shorthanded way of saying that ethical conduct, as a fabric and brand of an organization, needs to be reinforced at every level. By definition, tone in the middle and tone at the bottom requires that every employee embraces the importance of ethical conduct and compliance, and that such values are reinforced in every aspect of an organization.
Perhaps what I am advocating is wishful thinking but I believe that it is the wave of the future. Compliance and ethics as a value proposition makes sense. Thoughtful business leaders recognize this reality in today’s global marketplace. This is not limited to US companies but extends to companies around the globe. The sooner everyone recognizes this reality the sooner we can move on to other more challenging issues in the corporate governance world